Shuttleworth heir opens up on Ubuntu biz

When you have Mark Shuttleworth as your backer, as commercial Linux distributor Canonical does, it is a bit like having money in the bank when the bank also believes fervently in your cause. It is a rare combination, and one that has allowed the Ubuntu project to reach out from its Linux desktop beginnings into commercial servers - and with the latest releases, cloudy infrastructure - without having the profit pressure that most startups have to deal with as they try to grow.

While Shuttleworth may be the Self Appointed Benevolent Dictator For Life at the Ubuntu project, that does not mean that he is the best person to lead Canonical, the commercial entity behind Ubuntu, or even that Shuttleworth, having created digital certificate and security software vendor Thawte during the dot-com boom and selling it off to Verisign before the bust for $575m, wants to steer Canonical. He clearly doesn't, since Jane Silber, the long-time chief operating officer at Canonical, was tapped last December to replace Shuttleworth as CEO.

Silber started her new job running the company on March 1. With the transition, an important and influential British software company founded by a South African is now being run by an American ex-pat. One who has been a software developer and senior manager and who was vice president of command and control systems at the C4 Systems subsidiary of General Dynamics.

With the appointment, Shuttleworth heads up the Ubuntu development project and gets to tinker with all the technical stuff and interface with the open source community, and Silber gets to do all the paperwork and worry about making money off the stuff the Ubuntu project cooks up. In February, Matt Asay was brought in from open source content management software provider Alfresco to replace Silber as COO, so I guess we all know who is going to get a lot of the paperwork.

Jane Silber, Canonical's new CEO

Being privately held, Canonical is pretty secretive about the size of its business. Shuttleworth said when Silber was appointed last December that the company was not yet profitable but heading in the right direction with growth in its three key product lines. (He added that he expected to spend seven years building an open source platform and that the company still has nearly two more years to make it under the wire). But judging by its employee headcount, Canonical is growing like crazy.

In an interview with El Reg, Silber said that the current workforce at Canonical was about 320 people and added that the company was growing rapidly and would continue to do so. She said that Canonical added about 100 employees in both 2008 and 2009.

"We're pretty sizable now, and we have stuck to our original tradition of hiring the best people, no matter where they are in the world," Silber explained. "

Over the last couple of years, the mix of people has changed. We have more people in roles that probably aren't visible through the open source community. We have more sales people and more technical people working in the factories of major OEMs in Asia. We have an office in Taipei that we opened last year and one in Shanghai that we opened this year, for example, and we have a much larger presence there. A lot of our growth is there, and it is driven by the business coming out of our OEM Services group."

The Canonical business is like a three-legged stool. The OEM Services group is the largest part of Canonical, according to Silber, and it works with OEMs and other hardware suppliers to get the Ubuntu variant of Debian Linux installed on machines of all shapes and sizes (netbooks, desktops, servers). The Corporate Services group works primarily with companies - but also with governments and educational institutions - to sell them tools and services that help them better deploy Ubuntu in their organizations.

So money garnered through the Landscape online Ubuntu patching and management service plus tech support and training relating to the Ubuntu Desktop and Ubuntu Server distros comes from this group. The final group - and the newest unit and one that Silber established - is the Online Services group, which distributes some free as well as fee-based consumer-facing services. These include the Ubuntu One storage utility, which debuted last fall with Ubuntu 9.10 and which will be soon expanded with Ubuntu 10.04 to include the Ubuntu One Music Store, the Canonical equivalent to iTunes done in partnership with London-based online music distributor 7digital.

Silber would not elaborate on the relative sizes of these groups or on how much money each generates. She did say that the OEM Services group was the largest, and presumably, the Online Services group is the smallest, being the newest.

It is hard to guess how much revenue Canonical might be generating, since OEM deals are a big part of what it does and this could be more like consulting than selling support contracts as Red Hat and Novell do with their respective Enterprise Linux and SUSE Linux distros. But assuming there is some similarity, we take get a rough idea of how big Canonical might be and how fast it is growing. Depending on the year, Novell and Red Hat are generating around $235,000 to $240,000 per employee, and given that ratio, that should have put Canonical at somewhere around $30m in sales in calendar 2007, up above $52m in 2008 and kissing up against $80m in 2009.

With the economy coming out of recession and the appetite for new devices growing and Canonical's pushing into larger deals, the company will most likely resume the kind of growth it had between 2007 and 2008 in 2010. Of course, this is all speculation, as is the supposition that Silber moved up to CEO and Asay was brought in as COO to keep Canonical growing and presumably to push it to profitability so the company could go public. Canonical does not need to go public to get backers to fuel its growth, and it is hard to imagine Shuttleworth giving up the company to investors before it has reached a higher value than it would have even a year or two from now.

The community

The Canonical business is, of course, driven through the Ubuntu community, the vast majority of which get the software for free and don't pay anything for it because they do not consume services offered by Canonical. Just like the Fedora and openSUSE projects do not generate money (or much money, in the case of openSUSE, which Novell will offer tech support for, unlike Red Hat with Fedora).

So how big is that community? And what potential does it have for generating increasing revenues?

"All of our indicators are imperfect ones," explains Silber, and that is because Ubuntu's desktop and server distros do not have call-home features that allow Canonical to track their use; and while Canonical does have a sense of how many Ubuntu licenses are distributed through OEM deals, the problem is that in some cases, a box with Ubuntu is sold and then the Linux is nuked and a pirated copy of Windows is plunked down on the machine. "We know this happens on certain machines in certain markets, and we obviously don't like it," Silber says.

As far as Canonical can tell from its indirect indicators, the worldwide base of machines running Ubuntu is above 10 million. Back in October 2007, when Ubuntu 7.10 was launched, Shuttleworth was estimating the base to be around 6 million. (In 2006, Shuttleworth was guessing 8 million users, but backed down from that number). According to Silber, using some of the indicators it uses to reckon its installed base are growing at 10 per cent per month, which is very healthy growth for any software company, open source or not.

The important thing - and one that perhaps Novell should take a lesson from - is that Ubuntu's headcount and presumably its revenues (because Shuttleworth is actually a businessman) are growing at a faster clip than the installed base. Which could mean that Ubuntu has a fairly high conversion rate, relative to other open source programs, moving freebie customers to paid services.

The other interesting thing about the Ubuntu business is how it is changing. The vast majority of the support contracts that Canonical gets money from come from companies, not consumers, although consumers sometimes pay for an Ubuntu support contract indirectly when they buy Ubuntu embedded in a device.

Eye on the enterprise

Enterprise support contracts used to be fairly small deals done at mostly at SMB shops as they were installing Linux, sometimes for the first time. But now, as Ubuntu is becoming more widely adopted on a more diverse set of machines, and companies are coming to Canonical for much larger support contracts after they figure out developers have created applications running atop Ubuntu and they need to get proper commercial-grade support for these application platforms.

"There is a noticeable change in the kind of customers we are getting and the size of contracts," says Silber. "And there is a marked increase in interest around our Landscape systems management tools." The initial Landscape was run as a service hosted by Canonical, but last year a hosted version that companies could run behind their firewalls was announced, akin to the local version of Red Hat Network. IT shops like having their management tools hosted locally, although for SMBs, the trend is moving in the opposite direction towards SaaSy tools. Luckily, Canonical now has both.

And, says Silber, the roadmap for Landscape is moving up cloudy infrastructure management tools, lining up with the Ubuntu 10.04 Long Term Service (LTS) release due next month, which has the Eucalyptus cloud framework embedded in it. The cloudy management features in the future Landscape will not just work with the Ubuntu-Eucalyptus combination, but also on public clouds like Amazon EC2, where Ubuntu has been the most popularly deployed operating system on the service for some time.

Helping build cloudy infrastructure is not the only thing that will help Canonical grow. The company has a lot of grunt work to do, as every operating system provider does, in getting as many commercial applications - the database, middleware, and application software that companies deploy - certified atop its platform as possible. So how is application certification process going with Ubuntu?

"It's coming along," says Silber. "We frankly still have work to do in that area. It's something that we're seeing and expecting much improvement for with the Ubuntu 10.04 release coming out in April. We'll have a rolling series of announcements with ISVs announcing their support, and 10.04 is important because it is an LTS release and on the server has a five-year support cycle.

"That's really the one enterprises rally around both in terms of use and ISV support. So we are growing there, and will continue to grow, and not just in the traditional open source ISVs - like the Alfrescos and the Openbravos of the world - but in the more traditional enterprise ISVs. But we admittedly have work to do in that area."

Don't expect Canonical to say anything like this any time soon. If it runs on RHEL, it will run on Ubuntu. But, Silber says that Canonical is targeting the key subset of commercial applications that run on RHEL and SLES to get them certified. Oracle's databases are not certified, by the way, even though Oracle's own developers do use Ubuntu internally. MySQL, now under control of Oracle, obviously is certified to run on Ubuntu. The two companies have what Silber calls a "complicated but positive relationship."

The same holds true with the top-tier server makers, many of whom certify Ubuntu to run on their machines and yet do not go all the way and pre-install it, offering it alongside Windows, RHEL, and SLES. Silber would love to see Ubuntu take up its rightful position as the fourth pre-installed alternative, of course, but she's not as concerned with this as ensuring that Ubuntu gets certified to run on server iron.

"As ISVs are aligning around the 10.04 release, you'll see the server vendors do the same for certification," says Silber. Sometimes the server makers do the certification, sometimes Canonical does it in conjunction with the hardware maker. "In the server world, in terms of pre-installation, it doesn't matter that much. According to the data that we have seen, the vast majority of users re-install whatever operating system they want, and that the pre-installed server operating system is not that critical.

"The certification is critical because customers need to know that if they have a problem, they can call people. In the server world, pre-installation is something we want, but it is not critical. In the consumer world, pre-installation is the critical piece. There are only so many people in the world who are going to download and install an operating system."

Luckily for Canonical, that's a big enough pool of people to build a tidy and growing business upon. ®